Correlation Between Methode Electronics and Cal Maine

Can any of the company-specific risk be diversified away by investing in both Methode Electronics and Cal Maine at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Methode Electronics and Cal Maine into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Methode Electronics and Cal Maine Foods, you can compare the effects of market volatilities on Methode Electronics and Cal Maine and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Methode Electronics with a short position of Cal Maine. Check out your portfolio center. Please also check ongoing floating volatility patterns of Methode Electronics and Cal Maine.

Diversification Opportunities for Methode Electronics and Cal Maine

-0.84

Correlation Coefficient

Methode Electronics  Cal Maine

Pay attention - limited upside

The 3 months correlation between Methode and Cal is -0.84. Overlapping area represents the amount of risk that can be diversified away by holding Methode Electronics and Cal Maine Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cal Maine Foods and Methode Electronics is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Methode Electronics are associated (or correlated) with Cal Maine. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cal Maine Foods has no effect on the direction of Methode Electronics i.e., Methode Electronics and Cal Maine go up and down completely randomly.

Pair Corralation between Methode Electronics and Cal Maine

Considering the 90-day investment horizon Methode Electronics is expected to generate 1.95 times more return on investment than Cal Maine. However, Methode Electronics is 1.95 times more volatile than Cal Maine Foods. It trades about 0.18 of its potential returns per unit of risk. Cal Maine Foods is currently generating about -0.03 per unit of risk. If you would invest  1,108  in Methode Electronics on January 26, 2024 and sell it today you would earn a total of  121.00  from holding Methode Electronics or generate 10.92% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Methode Electronics  vs.  Cal Maine Foods

Methode Electronics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Methode Electronics has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating performance in the last few months, the Stock's technical and fundamental indicators remain fairly strong which may send shares a bit higher in May 2024. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Cal Maine Foods

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Cal Maine Foods are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy essential indicators, Cal Maine is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Methode Electronics and Cal Maine

The main advantage of trading using opposite Methode Electronics and Cal Maine positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Methode Electronics position performs unexpectedly, Cal Maine can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Cal Maine will offset losses from the drop in Cal Maine's long position.

The idea behind Methode Electronics and Cal Maine Foods pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Commodity Directory module to find actively traded commodities issued by global exchanges.